Indirect Tax

What is Indirect Tax?

Indirect taxes are the charges that are levied on goods and services. Some of the significant indirect taxes include Value Added Tax, Central Sales Tax, Central Excise Duty, Customs Duty, stamp duties and expenditure tax. Unlike Direct Taxes, Indirect Taxes are not levied on individuals, but on goods and services. Customers indirectly pay this tax in the form of higher prices.

For example, it can be said that while purchasing goods from a retail shop, the retail sales tax is actually paid by the customers. The retailer eventually passes this tax to the respective authority. The indirect tax, actually raises the price of a good and the customers purchase by paying more for that product.

Meaning of Indirect Taxes

The term indirect tax can be defined from different views. In the colloquial sense, an indirect tax is the charge that is collected by intermediary (like retail store) from the individual who holds the actual economic burden of the tax (like customer). The intermediary files a tax return and eventually passes to the government. The indirect tax can be alternatively defined as the charge that is paid by one individual at the beginning, but the burden of which will be passed over to some other individual, who eventually holds the burden. In a colloquial sense, one example of indirect tax includes VAT (Value Added Tax).

Basic Difference: Direct and Indirect Taxes

The primary difference between a direct and indirect tax is that direct tax is levied directly by the government from the taxpayer, but indirect taxes are collected by the intermediary.

Indirect Tax in India

The indirect tax in India constitutes a group of tax laws and regulations. The indirect taxes in India are enforced upon different activities including manufacturing, trading and imports. Indirect taxes influence all the business lines in India.